People’s Own Savings Bank’s ambitious mortgage scheme that will see the bank constructing houses in Harare and Bulawayo for low-income earners could be hampered by Zimbabwe poor economic performance that has resulted in market shrinkage, lack of disposable income and deposit prices that are beyond the reach of many.
By Faith Zhou
According to Admore Kandlela, POSB Chief Executive Officer, his bank is in the process of building 1600 houses and 600 flats in the two major cities of Zimbabwe to be mortgaged at a 12% deposit price and interest rate of 12 percent per annum.
Kandlela said POSB believes their scheme has a competitive advantage because of the bank’s huge client base, currently at 460 000 and lower interest rates per annum compared with other local banks offering the same service at interest rates ranging from 15 to 18% per annum as well as its huge client base, currently at 460,000.
Bright Manyangadze, a Strategic Consultant at Divine Commemoration, a property management company said POSB’s scheme has low chances of survival because of several reasons.
“The survival of the mortgage lending depends on who is getting the loans.
If the bank offers these to individuals, there may be problems because most people’s pay dates are unstable, the bank may have problems when it comes to collecting its interests,” said Manyangadze.
He added that even if mortgages are offered to cooperatives, the country is facing a serious financial crisis therefore the probability of having bad debts is high, therefore the chances of the scheme’s survival are hanging in serious doubt.
According to Manyangadze, projects like these succeeds if the country is in a position of having remortgages in case of losses and bad debtors.
“Since the economy has collapsed to an extent of not having these, there are extremely low chances of survival of this scheme,” said Manyangadze adding that POSB will most likely to face the same problem faced by CABS and ZB.
A look at comparative schemes introduced by other local banks including CABS and ZB Bank have not performed well.
Central African Building Society (CABS) tried a similar project in Budiriro and it failed to yield profits. ZB Financial Holdings (ZB) Building Society, which has houses along Twentydales in Hatfield, Harare and housing stands in Beitbridge has also failed to attract takers.
The country has an informalized economy with the majority of people surviving on vending, trading of goods and services and many other forms of self-help. Most of the population rely on these forms of jobs which will stifle the success of the POSB scheme as most part of the population does not have a stabilized form of income. The few people that are employed also face the problem of erratic incomes which makes it impossible for the people to buy houses on mortgage.